Higher fixed costs lead to higher degrees of operating leverage; a higher degree of operating leverage creates added sensitivity to changes in revenue. A more sensitive operating leverage is considered more risky, since it implies that current profit margins are less secure moving into the future.

Is low operating leverage good?

Generally speaking, high operating leverage is better than low operating leverage, as it allows businesses to earn large profits on each incremental sale. Having said that, companies with a low degree of operating leverage may find it easier to earn a profit when dealing with a lower level of sales.

Is a higher or lower operating leverage better?

Operating leverage, in simple terms, is the relationship between fixed and variable costs. ... A company with low operating leverage has a high percentage of variable costs to total costs, which means fewer units have to be sold to cover costs. In general, a higher operating leverage leads to lower profits.